Fiat Chrysler would rev up China's Great Wall

On Monday, a Great Wall official told Reuters it was interested in FCA. Earlier, sources told Reuters it had sought a meeting so it could bid for all or part of FCA. FCA later said it had not been approached by Great Wall.REUTERS | August 22, 2017, 13:11 IST

Fiat Chrysler's equity value is $19 billion, before any takeover premium, or assumed debt. Even just carving out Jeep would be a challenge. Morgan Stanley analysts estimate its standalone enterprise value at around 23 billion euros ($27 billion).

By Pete Sweeney

HONG KONG: China's Great Wall Motor is taking a page from Geely's book by driving at Fiat Chrysler. Just as its counterpart benefited from buying Volvo, Great Wall could use the $19 billion Italian group's knowhow.

But this could seriously stretch the buyer's finances and management capacity.

Asked last week about reports of a Chinese buyer circling FCA, Geely Automobile Chief Executive Gui Sheng Yue told Breakingviews he thought a competitor had been inspired to copy Geely's experience. He was right.

On Monday, a Great Wall official told Reuters it was interested in FCA. Earlier, sources told Reuters it had sought a meeting so it could bid for all or part of FCA. FCA later said it had not been approached by Great Wall.

Great Wall is vying with Geely to become the first Chinese carmaker to go global. If it bought all of FCA it would get Jeep, Maserati and much else.

The flagship Jeep brand is a natural fit since Great Wall makes sports utility vehicles, and SUV sales in China are soaring.

What is more, behind the brands lie platforms, supply chains and distribution networks that would plug the Chinese firm straight into the North American and European automobile markets.

But the execution risk is huge. Great Wall is hardly an experienced overseas acquirer. And this would be the first Chinese acquisition of major American car brands: under U.S. President Donald Trump the political headwinds might be stiff.

This is also an order of magnitude bolder than the $1.8 billion purchase of Volvo, which had produced 334,000 cars in 2009. Fiat made more than 4.7 million vehicles last year.

Fiat Chrysler's equity value is $19 billion, before any takeover premium, or assumed debt. Even just carving out Jeep would be a challenge. Morgan Stanley analysts estimate its standalone enterprise value at around 23 billion euros ($27 billion).

However, Great Wall does have some hefty state investors, including Beijing's asset manager, Central Huijin, and the National Social Security Fund, which will presumably help finding loans. And Geely showed it is possible for a Chinese automaker to drive a foreign brand without wrecking it - mostly by leaving the steering to the experts.

Great Wall would be wise to take the same road. Either way, the race to become China's top auto brand just heated up.